The ultimate financial management strategy for tech startups
For a tech startup, the first few years are critical to its growth. You need to do your research, target the right customers, create a product that meets the needs of the market, and develop a solid marketing strategy. Most importantly, to stay relevant, you need to keep pace with the ever-changing IT trends and adapt your product to them.
But, no matter how important all those steps are, none of them are possible if you don’t establish a solid financial management strategy first. Of course, managing finances is not only about getting your startup funded. This is just the beginning of your journey. It also means setting your goals realistically, exercising caution when making your decisions, and monitoring your cash flow regularly.
In other words, financial management intertwines with other segments of your business’ growth, enabling them to run smoothly and uninterruptedly.
Automate your Financial Management Efforts
Hiring an in-house accountant to handle your finances is always a great option, but it may cost you a penny as this article on accounting salaries shows. That’s exactly why many startups decide to take care of their finances on their own. However, this is easier said than done.
To do so properly, you first need to be familiar with the basics of accounting. For example, if you don’t know how to read your financial statements, including a cash flow statement, an income statement, a balance sheet, and a statement of shareholder’s equity, it’s time to learn how to do so.
Most importantly, you need to keep track of every single dollar your business spends or earns. This means handling mountains of receipts, taxes, invoices, bills, and of course, salaries. Some store them in a shoe box, while others enter all their transactions to Excel or Google Spreadsheets.
However, in today’s era of sophisticated IT solutions, most of startups and small businesses decide to automate their accounting efforts. For example, there is a plethora of cloud-based accounting platforms, such as FreshBooks or Xero that will do all the hard work for you and help you monitor and manage your cash flow and outflow instantly, regardless of your location.
Also, by automating your recurring payment system, you won’t have to collect and process your payments manually ever again. Tools like these help you create payment plans tailored to your startup’s needs and let you choose the frequency of payments, amounts to be collected, and payment methods on your own.
Choose the Right Funding Method
Have you ever watched the HBO’s Silicon Valley? If you have, then you then you certainly know that securing funds is one of the most common problems startups come across. Every decision you make can either help you take your business to the next level or distract you from attaining your long-term goals.
In other words, choosing a funding option may make or break your startup’s future. According to the recent CB Insights report, 13% of startups fail due to the disharmony between their management and investors, while 8% of them cannot find investors interested in funding their product.
What you need to know is that, when it comes to choosing your funding methods, there is no one-size-fits-all solution. To do so, you need to do your research and go with the one that meets your business’ needs.
- Take out a bank loan.
- Apply for a government or private sector grant.
- Take advantage of startup incubators and accelerators that have become extremely popular in Silicon Valley over the past few years.
- Participate in a tech startup contest, such as including TechCrunch Disrupt, Web Summit, Slush, Amazon Web Services Start-Up Challenge, etc.
Allocate your Resources Judiciously
Every Silicon Valley startup dreams of becoming the next Apple, Google, or Microsoft. They book a fancy office in the heart of the city, throw numerous expensive parties, and invest in the state-of-the-art equipment. They set the bar too high and, consequently, most of them will run out of cash and sink. The CB Insights’ report mentioned above points out that 29% of startups fail because they don’t allocate their time and money judiciously.
To stay competitive, you need to grow gradually and keep all your unnecessary expenses low. Even though this means scaling down your ideas a bit, this is the only way to stay competitive. For example, instead of buying new equipment, use the existing one. Also, you don’t really need that huge office right now. To save your money, you could consider outsourcing your workflow.
With a bunch of affordable IM apps, cloud storage providers, and workplace collaboration platforms, your employees will be able to work together on important projects and communicate in real-time, regardless of their time zone and location. You will benefit from this option, as well. Namely, studies show that remote working programs help companies save up to $11,000 per year.
Monitor and Measure your Financial Health
To stay on top of your resources, you need to keep an eye out for their fluctuations. For instance, to see whether your business is performing at an expected level, you could start with analyzing your current financial statements and comparing them to the previous ones.
And, with the accounting platforms mentioned above, this has never been simpler. They will provide you with a detailed list of all your transactions, helping you analyze your company’s progress and plan ahead. Most importantly, they will give you an invaluable insight into your past inflow and outflow patterns. They will help you see what works for your business, set achievable milestones, and make data-oriented decisions.
For example, you’re not satisfied with your sales and you want to increase them by selling 30% more products than last year. All you need to do is analyze your last year’s sales, see how they rise or drop due to various factors. Based on the facts you collect, develop a new sales plan that will help you reach your goals.
Back to You
Handling your startup’s finances is an extremely complex and time-consuming process. And, if not done properly, it may jeopardize your startup’s bottom line.
So, use cloud-based platforms to automate your financial management efforts and monitor your performance.
Choose the funding method that gives your startup a chance to grow faster.
Set your goals realistically and cut all unnecessary expenses.
This way, you will manage to stay competitive, make reasonable decisions, and maybe one day grow your startup into a tech giant.